TALLAHASSEE -- Gaping holes have undermined a state law aimed at discouraging Florida utility regulators from talking privately with the companies they oversee, a statewide grand jury reported on Tuesday.

After six months of testimony by past and present Public Service Commission employees -- including Commissioner Terry Deason -- the grand jury said state legislators must tighten the current law and toughen penalties.

The panel saw a parallel between commissioners and judges.

``A judge cannot meet with one party alone to discuss an issue of importance if the judge is the final arbiter of that issue,`` the panel wrote. ``Judges are required to avoid even the appearance of impropriety.``

The grand jury was convened amid increasing scrutiny of the five-member commission, which has often been accused by legislative and consumer critics of being too cozy with the utilities and phone companies it regulates.

Some commissioners have vacationed with executives from the regulated industries, while others have accepted dinners and attended social events with utility representatives.

Criticism was renewed in November when Michael Wilson, a former PSC chairman, resigned from the panel to head a non-utility subsidiary of the FPL Group, which controls the state`s largest utility.

Wilson and FPL officials denied that the move was a conflict of interest. But the action heightened questions about the commission`s independence and integrity.

The grand jury raised similar questions about private communication between commissioners and utility officials.

Under a 1990 law, commissioners are banned from discussing any industry- related issue that may be going before the commission within 90 days. However, if such discussions take place, all a commissioner has to do is file a public report within 15 days of the conversation.

Failing to file the report could lead to a commissioner being removed from office or being fined $5,000.

Current law also does not bar aides to commissioners from meeting with industry representatives and passing the information on to their bosses. Likewise, utilities face no penalties if they engage in private communication with regulators.

The grand jury is recommending the Legislature revise the law to require commission aides to file public summary reports of any such conversations. Heavy fines also could be imposed on utilities who talk privately with commissioners.

The grand jury has suggested these fines represent a percentage of a company`s profit margin -- which could amount to hundreds of thousands of dollars in fines for violating companies.

Deason, the commissioner who testified before the panel, said he welcomed the grand jury`s findings.

``There are suggestions for improving the process,`` Deason said. ``But I take the report as it`s intended -- a positive thing. I don`t see it as overly critical.``

But Statewide Prosecutor Melanie Ann Hines said the loopholes in the law are large enough that ``the current law is virtually meaningless.``

Hines also noted the grand jury`s findings are only an interim report of the panel, which is likely to continue hearing testimony for another six months.

While reviewing commissioner matters, the closed-door panel is also believed to be investigating Southern Bell. The company has been accused of falsifying phone repair records to avoid making state-required refunds to customers.

``It`s safe to say that since the grand jury is continuing its investigation into an individual utility, that hopefully you`re going to see another report, presentment or indictment soon,`` Hines said. ``The grand jury will leave no stone unturned.``